ABSTRACT
The role of the financial system in the development process is a central concern of the post-Washington consensus, and a major bone of contention with the Washington consensus. The rise of the post-Washington consensus has coincided with the relative decline in influence of the financial liberalisation current that was closely associated with the Washington consensus. In recent years, there has been a general shift in focus of financial research towards the institutional structure of the financial system (indicative literature includes Zysman 1983; Mayer 1987, 1988; Corbett and Mayer 1991; Mishkin 1997). The design of financial systems is increasingly thought to influence monitoring of investment, avoidance of rent-seeking and generation of entrepreneurial incentives. Facilitating the shift is an underlying transformation of microeconomic theory and the emergence of endogenous growth theory, driven by analysis of market failure due to asymmetric information and transactions costs, as discussed elsewhere in this volume. This has allowed incorporation into analysis of finance of concepts previously thought of as non-economic: trust, customs, networks, commitment and so on. This development has provided necessary underpinning for the postWashington consensus.
